AmorePacific recorded the best first quarter result in its history this year with sales rising 21.8 percent YoY to 1.759 trillion won and operating profit up a whopping 30.7 percent YoY to 419.1 billion won, the cosmetics giant said on May 4.
AmorePacific posted record earnings again as sales of its beauty products keep surging in China.
Sales in Asia grew 50 percent, playing a key role in AmorePacific¡¯s stellar earnings performance. The operating margin reached 23.8 percent, which is even higher than Apple's celebrated 23 percent and Google's 21 percent last year.
Amore Pacific's full-year operating margin is forecast at 18 to 20 percent given the cosmetics industry's tendency to post higher operating profits in the first quarter due to lower marketing costs. But that is still an enviable edge for a manufacturer like AmorePacific.
A company spokesman said brand awareness in China is rising, which helps it cut marketing and advertising costs and improve profitability.
Amore Pacific sells products to Chinese customers through three channels Korean duty-free shops, local production and sales in China and exports from Korea. Sales through these three channels surpassed 1 trillion won in 2015 and are expected to reach 2 trillion won this year.
The company's overseas strategy is to focus on marketing five of its 30 brands Sulwhasoo, Laneige, Mamonde, Innisfree and Etude. "A wide range of brands enables us to target a wide customer base from middle-class and wealthy customers to young and middle-aged ones, which leads to stable growth," a spokesman said.
Sulwhasoo is as pricy as foreign luxury brands, accounts for around 20 percent of total revenues and contributes significantly to the high profit margin. It became the first sole Korean brand to surpass 1 trillion won in sales last year.
Sulwhasoo and Hera, another premium brand, accounted for 70 percent of duty-free sales in the first three months of this year, up from 60 percent in the previous quarter.
Amore Pacific does not use a "face" to advertise Sulwhasoo, which uses traditional herbal ingredients, while rival brands rely on Korean stars. "The company wanted to develop Sulwhasoo into a leading brand by pitching the quality of the product, rather than relying on the popularity of the advertising models," the spokesman said.
"Due to the slowing Chinese economy, most luxury label sales have decreased, but sales of high-end cosmetics, which are more affordable, continue to rise," said Lee Dal-mi, an analyst at Hyundai Securities. "China's middle class keeps growing, so Amore Pacific's growth will continue as well."
Major affiliates of the cosmetics¡¯ giant also had their sales rise a lot in the first quarter. Innisfree had its sales rise 31 percent YoY thanks to huge increases in the sale of its products such as Hanlan Cream (186.6 billion won) its operating profit rose 47 percent YoY to 51.9 billion won. Etude House saw its Q1 sales rise 14 percent YoY to 81.4 billion won, led by substantial increases in sales of its major products such as 101 Stick to boost the operating profit a whopping 255 percent rise YoY at 12.3 billion won.
The company¡¯s overseas sales rose by 46 percent on-year in the first quarter to 408 billion won, led by the popularity of its leading brands — Sulwhasoo, Laneige, Mamonde, Innisfree and Etude — in Asia, particularly China.
In Asia, the company¡¯s sales rose 50 percent on-year in the first quarter to 378.7 billion won, led by the expansion of Sulwhasoo and Innisfree¡¯s distribution channels in the region.
Its North American sales also rose 24 percent on-year during the cited period, thanks to the improved local brand awareness of Laneige and Sulwhasoo, a luxury herbal cosmetics brand, the firm said.
By brand, Innisfree, a low-end, naturalism-inspired cosmetics brand, marked the highest sales growth of 31 percent, while Etude House, another budget brand, recovered from last year¡¯s slump to expand its sales by 14 percent.
The popular Sulhwasoo skin care creams in various packages. (Photos:AmorePacific)